Gold Commentary for Sunday, April 5, 2020 (www.golddealer.com)
By Richard Schwary of California Numismatic Investments Inc ……
Gold closed up $8.00 today at $1,633.70. Last Friday gold closed at $1,623.90 so on the week we have lost $9.80 which suggests a more stable market, which is a blessing considering the growing virus threat.
Don’t get the idea that just because most dealers have little for immediate delivery that there is a shortage of precious metals. There is a shortage of production because the virus has shut down many world mints. And there is a shortage now of silver coming out of Mexico, the world’s largest producer because the virus has shut down both the country and the mining industry.
Also keep in mind that it will take time for anything close to “normal” world delivery to take place because the supply chain has been damaged. Typical air transport may not be available as pilots try and cope with space restrictions and possible quarantined airports. The same problems exist with both truck and train transport – not as bad but still impacted.
Still most real players in the gold game today are looking for $1,700.00, maybe higher depending on how the “fear” factor plays out. Fear however comes and goes, and quickly.
As you all know the medical community is talking about possible vaccines with a time horizon of 12 months. If true, this will eventually take some of the urgency out of the daily trade once it becomes clear that “stay at home” orders are effective in slowing the virus spread.
And sooner than later the “shortage” in gold and silver bullion will dissipate – this will do wonders for the physical world. Believe me once the public sees that they can buy and get delivery in a reasonable time the phones will quiet down.
Demand will continue to be widespread, but the urgency will dissipate, lowering premiums and we can get back to the old paradigm that a 10% physical gold holding makes insurance sense.
As the world comes back into focus stocks will reassert themselves and we will be better able to assess what went wrong and how we can improve our response time to the next emergency.
During this transition the dollar will remain strong – which will compete with the price of gold during this perhaps lengthy march back to “normal”. In early March the Dollar Index was 95.00 and moved through 102.00 by mid-month. We have now settled around 100.00 – still very strong and in my opinion another impediment to much higher gold prices on the short term.
Even with today’s uncertainty level – the typical assumption regarding the price of gold should be approached carefully. We have enjoyed a cheap money and inflationary policy since the 2008 real estate fiasco – and yet the expected inflationary wave did not materialize. And no one could have envisioned the Fed dropping interest rates to zero and putting together an unprecedented two-trillion-dollar bailout package in short-order.
So, we have again doubled down on the fiat currency “fix” suggesting once again that inflation will soon become a problem. In this case it was the reasonable course considering that in America today four out of five people are asked to “stay at home” to combat this virus.
Still, consider outside factors which work against this “inflation” scenario. The price of crude oil in early 2020 was $60.00 a barrel and by late March we were looking at $20.00. Suggesting just the opposite, deflationary wave.
So, forgive my usual assessment – the world is not coming to an end. Even with this threat yet to peak in the US, I would suggest that metal prices – plus or minus typical premiums – might remain more consistent than everyone is suggesting. They are doing what they usually do – acting as a reasonable safe haven in troubled times. Finally, for those reading with a spiritual side it is a good time to recall Paul’s words in Romans 8:28: “And we know that all things work together for good to those who love God, to those who are the called according to His purpose.”
This from Zaner (Chicago) – “Global equity markets overnight were generally lower but declines were mostly below 1%. Economic news released overnight included Japanese bank services PMI reading that the came in better-than-expected but 12 full points below the prior month. Australian retail sales for February were up 0.5 and were better than expected but those figures were before the brunt of the crisis settled into place. Also out from China overnight were Caixin services PMI readings for March which came in at 43 versus the prior number of 26.5. Throughout Europe services and composite PMI readings for March were all worse than expectations and mere fractions of the prior month’s results. However composite European retail sales were better than expected in February versus the prior month and year ago levels. The North American session will begin with the highlight for global markets, the March US employment situation report. March non-farm payrolls is expected to have the first negative monthly reading since September of 2010, but estimates have ranged from a 100,000 increase to more than a 1 million decrease. March unemployment is forecast to have a sharp increase from February’s 3.5% reading which March average hourly earnings are expected to hold steady at a 3.0% year-over-year rate. The March ISM non-manufacturing index is forecast to have a sizable downtick from February’s 57.3 reading. Earnings announcements will include Constellation Brands before the Wall Street opening.
The shifting sands of the gold and silver markets has continued into the final trading session of the week with a slight headwind this morning presented from a higher dollar and a bit of risk off psychology. We also think that gold and silver will have an initial negative knee-jerk reaction to this morning’s US March nonfarm payroll reading from physical demand concerns. However if the jump in US unemployment is really shocking that could prompt a compacted surge in prices as was seen following claims yesterday. In other words the latest focus of gold and silver has generally been classic physical commodity market demand views and yesterday’s optimism has reversed course this morning and should be challenged further. However this week has seen a series of strong demand headlines from both the Australian and US Mints which have seen strong demand for gold and silver coins and bars. In Australia the Mint reported March gold sales of 93,775 ounces versus only 22,921 ounces in the prior month with silver March demand at 1.73 million ounces versus a mere 605,634 ounces in the February. Gold ETF’s also added to holdings for the 9th straight day with 149,813 ounces purchased bringing the year to date purchases close to 8 million ounces. The US Mint saw the fastest purchasing pace in 3 years in March with the purchase of 142,000 American Eagle coins and that in turn has ramped up the premium of coins over the price of gold! Unfortunately silver ETF’s saw a 2nd straight day of reduction in holdings and that brought down purchases on the year to 41.2 million ounces. However it should be noted that the global annual silver deficit in 2018 was only 30 million ounces and therefore the year to date purchases by silver ETF’s are still very material to prices. While Bloomberg is suggesting gold will see support from news that gold refineries in Switzerland are set to restart operations after being idled for 2 weeks, we are suspicious of the claim that dealers have not placed large orders because of those shutdowns and will now place those orders. Another story that we are suspicious of has been talk that demand in North America and Europe has called into question the availability of getting physical gold bars from New York but there are signs that buyers are scrambling to secure supply from Australia. Storage facilities in New York have made it clear their operations will not be disrupted and that they hold more than enough supply to meet demand. Going forward gold and silver will continue to battle the entrenched threat against cyclical/physical demand with that pressure periodically overcome by surges in investment demand. Therefore we give the bear camp an edge today with support/target levels seen at $1612.40 and $1609. Surprisingly the downward bias in silver is not as clear as in the gold market to start today but slight erosion in prices is possible with targeting seen down at $14.34 and then down at $14.26.
The palladium market damaged its charts yesterday and failed to get a physical commodity market lift and that has to be disconcerting to the bull camp. However, trading volume in palladium futures has slowed to a minor trickle with barely 1,000 contracts traded on Thursday and that could make it difficult for the market to attract enough buying interest to ignite another major run as was seen from the March lows. It should also be noted that recent open interest in palladium has declined to just 7,600 contracts compared to the 2020 high of 26,000 contracts, and therefore the bull market might be dying of old age. On the other hand, the palladium market has traded wildly without direct fundamental cause, and those pressing the short side of the market should beware of sudden turns. In the platinum market, it is also seeing extremely low trading volume with the trade yesterday failing to post 8,000 contracts traded which is 1/7th of the trading volume seen 3 weeks ago. The platinum market has additional technical problems beyond those seen in palladium as it has consistently held a larger net spec and fund long and therefore any sign of a failure below $701.20 today could result in a weekending stop loss selling wave.
Not surprisingly the gold and silver markets are facing yet another key junction today as expectations for a historic monthly jump in US unemployment figures (and tremendous losses in nonfarm payrolls) could result in fear of physical demand losses. However like the claims report yesterday, seeing historically concerning readings from the jobs report could also inspire a wave of safe haven/speculative buying gains. In short, gold and silver face a critical junction this morning with the Bears holding a slight edge for the pre-report action and also because of ongoing favor for the dollar and US treasuries. Aggressive traders might be short early cover and get long ahead of the 730 numbers and then reverse after a post jobs report rally.
Silver closed down $0.16 at $14.44.
Platinum closed down $11.90 at $714.10 and palladium closed down $15.70 at $2,134.50.
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